Q1. I’m a 31-year-old software professional. I have been investing in mutual funds for a while and have a decent portfolio. I like to keep myself up-to-date on the market movements. A friend advised me to try stock trading now, given that I am still single and without loans. How do I know if I’m ready?
Akshay Garg, Delhi
Your approach to investment decisions is driven by research and planning which is an ideal way. Although your friend’s suggestion on leveraging your risk appetite may sound intuitive, trading isn’t the only workaround.
We generally don’t advise anyone to trade unless they are a trader by profession. However, if you are keen on getting a flavour of the market, start with a small amount that you’d be okay to lose. We are not just considering the risk appetite here, but also the performance penalty. Consider this:
Brokerage platforms don’t publish any data to show how well the retail traders are performing on their platform. Reason is that the performance of a majority of retail investors tends to be underwhelming. Instead, they publish market news, “hot tips” and other nudges aimed at increasing the trade churn - that’s how they earn revenue.
Moreover, if retail investors were really making outsized gains, consider why is it that not even a single trading platform shows XIRR? That’s because the data is not worth showing.
Some studies also show that retail traders quit trading at an alarming rate. About 75% of retail traders stop trading after 2 years, and as many as 90% stop after 4 years due to trading-related account losses.
Being heavily invested in the stock market might lead to a reduction in potential wealth and can cause dramatic changes in your lifestyle. So ensure you start with a small amount and learn the ropes of trading before considering it as a serious investment option.
Q2. I’m 40 yo, a financially independent woman going through a divorce. Our finances during the last 15 years of marriage—although mutually agreed— were handled by my husband. I’m in a fix, not knowing how to take charge of my own money and how to settle our finances.
It’s a common dilemma faced by many separating couples, however, you could also seek legal counsellors, financial advisors, etc., should you find the process taxing. For starters, you can look out for these basic things:
If you maintain an amicable relationship with your ex-partner, we recommend you go through the finances together.
1. Joint Accounts: If you have any joint bank accounts, we’d advise you to settle them on priority. You can start by listing down all your joint investments.
2. Nominations: Update the nominee in your insurance policies, PF account, PPF, etc., wherever you might have nominated your ex-partner.
3. Credit Cards: If you have a co-owned credit card, settle the balances immediately and close the accounts as soon as possible.
4. Investments: Before agreeing on how to allocate the funds, ensure that you have full knowledge and understanding of the investments. Investment value and actual returns vary according to risk levels, taxes, and expense ratios.
There will also be investments that might make more sense to one partner than another— depending on your individual risk appetite, goals & responsibilities. So, do seek expert advice if you find it difficult to make such decisions.
5. Mortgage: If you have any joint loans, remember that mortgages can be a bit of a hassle. Even if one partner decides to take full ownership, the process of refinancing will require approval from entities. One of the viable options is to sell the property and divide the proceeds.
We hope educating yourself on personal finances & taking charge of your investments empowers you on your new journey. Wish you luck!
Note: This story is for informational purposes. Please speak to a financial advisor for detailed solutions to your questions.
Kuvera is a free direct mutual fund investing platform.